Will Central Fund of Canada Recover in 2012?
With 2012 just beginning, now's a smart time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should keep buy it for your portfolio -- or sell it if you already own it.
Today, let's take a look at Central Fund of Canada (ASE: CEF) . As I discussed last month, Central Fund's status as a closed-end fund gives investors a chance to own both gold and silver bullion in a single convenient exchange-traded package. But after the roller-coaster ride that precious metals have been on lately, it's hard to feel confident about any gold or silver vehicle's prospects going forward. Below, I'll take a closer look at what people expect from Central Fund and gold and silver.
Forecasts on Central Fund of Canada
|Current Premium to Net Asset Value||1.8%|
|Coin Dealers Avg. Prediction for Gold Price at end of 2012||$1,976|
|Coin Dealers Avg. Prediction for Silver Price at end of 2012||$48.73|
|CAPS Rating (out of 5)||***|
Sources: Central Fund website; Professional Numismatists Guild.
How will 2012 go for Central Fund?
Central Fund opens the New Year with interesting conditions in the market. Gold finished 2011 up by about 10%, while the silver-owning iShares Silver Trust (NYS: SLV) fell a relatively modest 11%, as the value of the silver it owns dropped in response to falling investment demand. The iShares Silver Trust saw total ounces of silver fall from 351 million at the end of 2010 to 308 million last week.
But recently, there's been a huge disconnect between bullion-owning investment vehicles and the actual mining companies that dig up gold, silver, and other precious metals. For instance, you'd expect Silver Wheaton (NYS: SLW) , which helps finance other companies' mining operations through silver streaming arrangements, to trade roughly in line with silver. But it lost more than 25% last year.
Many miners did even worse, with both Hecla Mining (NYS: HL) and Brigus Gold (ASE: BRD) losing half their value in 2011. Both companies had significant operational challenges that held back results. Central Fund, on the other hand, avoids those concerns by simply buying bullion on the open market.
But most analysts expect gold and silver mining stocks to regain ground in 2012. With higher gold and silver bullion forecasts as well, Central Fund might underperform the miners but still post decent gains this year. It's not a risk-free bet, though -- if an economic recovery threatens to push interest rates higher, then bullion could lose the backing of cheaply financed speculative investment.
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At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
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